Business Planning using Cash Flow Analysis

Gary Matteson, Farm Credit Council

Carl Horne, Farm Credit Services of America

Looking to the Future

• What are your skills?• What is your tolerance for risk?• What is your capacity to deal with

ambiguity?• What is your capacity to lead others?• What is your capacity for self-discipline?

What is your capacity to gather information?

define success

acres gross salestractors yield/acrecows net profit

define success

enough net profit to meet your goals for your family and your business

• Plan to succeed, plan to be happy• Tell your story in a business plan• A budget is a plan in numbers• Plan for contingencies

know your business

Three basic business skills:1. Financial2. Production3. Marketing

If you are lucky you have two of these skills.Partner with or hire the skill you don’t have.

manage your business

Historical Dollars % of Sales

Sales (total income) $113,400 100%

- Cost of Goods Sold:(variable costs)

$87,585 77%

= Gross Margin: $25,815 23%

- Overhead(fixed costs) $15,034 13%

= Profit (Net Margin) $10,780 10%

The 5-Line Income Statement

This 5-Line Income Statement

Becomes the basis of this Cash Flow Analysis Spreadsheet

Showing Annual Business ResultsHistorical Dollars % of Sales

Sales (total income) $113,400 100%

- Cost of Goods Sold:(variable costs)

$87,585 77%

= Gross Margin: $25,815 23%

- Overhead(fixed costs) $15,034 13%

= Profit (Net Margin) $10,780 10%

The Concept of Cash Flow Budgeting

Summary of Annual Results from Spreadsheet (the 5-Line Income Statement)

Pastured Pork Cash Flow Analysis

Cash flows are highlighted in

yellow

Pastured Pork Cash Flow AnalysisMonthly Results Spreadsheet

Pastured Pork Monthly Cash Flow Analysis

how quickly can you make money?

• Goal of producing cash in 6 months• Budget to accomplish goal• Pay your bills• Family living expenses

• Record keeping is required for taxes• Ultimate goal is to manage from records• Need up-to-date and accurate records• Create budget with expectations and

measurable results

plan your business

starting in the beef business

Like any small business:income

expensescash flow

things to do before starting

• Save money• Protect credit rating• Gain experience• Network• Plan

.www.annualcreditreport.com

Historical Dollars % of Sales

Sales (total income) $367,200 100%

- Cost of Goods Sold:(variable costs)

$312,600 85%

= Gross Margin: $54,600 15%

- Overhead(fixed costs) $7,800 2%

= Profit (Net Margin) $46,800 13%

Grass Fed Beef5-Line Income Statement

Historical Dollars % of Sales

Sales (total income) $134,400 100%

- Cost of Goods Sold:(variable costs)

$80,096 60%

= Gross Margin: $54,304 40%

- Overhead(fixed costs) $10,472 8%

= Profit (Net Margin) $43,832 33%

Direct-to-Retail Vegetables5-Line Income Statement